High Income Child Benefit Tax Charge (HICBC)

If the income of any person within the household – both married and unmarried couples – exceeds £50,000, any child benefit received is clawed back at the rate of £1 for every £100 of income. At the point that income reaches £60,000, the full child benefit received is clawed back via an equivalent tax charge on the higher earner.

As with most things that politicians introduce, the workings of the system can lead to anomalies and some significant marginal rates of tax being suffered. Some examples of such anomalies are given below

Example 1

Household 1 has total income of £99,000 with person A earning £49,500 and person B earning £49,500. They have 2 children and are receiving child benefit of £1,800.

Household 2 has total income of £70,000 with person A earning £60,000 and person B earning £10,000. They have 2 children and are receiving child benefit of £1,800.

Under the High Income Child Benefit Tax Charge rules, household 1 will have no claw-back of its child benefit as neither person earns in excess of £50,000, whereas household 2 will suffer a full claw-back of its child benefit with person A suffering an additional tax charge of £1,800.

So Household 2 has £29,000 less total income than Household 1 and suffers an additional tax charge!! Crazy, but true.

If at all possible, try and ensure that as much as possible the family income is equalised.

Example 2

Jane earns £50,000 and receives child benefit of £1,800. She has a student loan which is currently being repaid. She is paid a bonus of £10,000. Tax on the bonus will be:-

Income tax

40%

£4,000

NIC

2%

£200

Student loan

9%

£900

HICBC

100%

£1,800

Total

69%

£6,900

So Jane suffers a marginal rate of 69% on her bonus!!

What she should consider doing is to divert her bonus into a pension plan, thereby avoiding all the charges shown above and effectively receiving 69% tax relief on her pension contribution.

If your income is around the £50,000 level and you are in receipt of child benefit, any additional income or bonus will suffer significant marginal rates of tax so plan early to avoid this if possible.